On the Move

TxDOT’s $1 billion accounting gaffe explained

During last night’s Texas Republican primary debate, Debra Medina and Kay Bailey Hutchison both mentioned TxDOT’s 2008 accounting error, with both saying that TxDOT lost $1 billion.  Sadly, these are people who are running for governor and even they just can’t get basic facts right.  Now I realize that for folks running for office and/or wanting to besmirch TxDOT, saying they lost $1 billion is a great talking point.  But the anticlimactic fact is this: no money was ever lost.

What happened was this: while laying-out their budget for the year, TxDOT accountants accidentally counted $1 billion in new bond revenues twice.  This lead to an “extra” $1 billion in the budget for that year against which a subsequent list of projects was approved to spend that extra money.  When the accountants realized what had happened, that $1 billion worth of “extra” projects had to be rescinded.

People who don’t understand what happened think this means TxDOT “lost” or “misplaced” that money.  But it’s money that wasn’t there to begin with.  Here’s the best analogy I can come up with to explain what happened in layman’s terms:

Imagine you’re planning your own budget for the year.  Your income includes 52 paychecks of varying amounts for you and your spouse, rental income on a couple of properties, investment income from several stocks, and income from an online business.  Image that you also just got a $10,000 inheritance, which you decide to use to pay-off some debt.  While planning your budget, though, you inadvertently include that $10,000 twice in your budget (maybe you added it and then your spouse added it later, not realizing you had already added it.)  So you decide to use that “extra” $10,000 to make some improvements to your home that you had been putting off.  Then, a few weeks later, you go over your budget again and realize your mistake and now you have to cancel those home improvements because you can no longer afford them.  Did you actually lose $10,000?  No, you simply counted on money that wasn’t there in the first place.  Does that mean you’re incompetent?  Well, no, probably not.  Your budget consists of a lot of income streams, and this was a new, one-time income source that inadvertently got counted twice and then overlooked due to the complexity of your budget.

This is the same thing that happened to TxDOT.  The $1 billion was a new revenue source that year from bond proceeds.  TxDOT has a multitude of income streams and budget planners simply counted that new bond revenue twice while forecasting their income for the year.  No money was ever “lost” or “misplaced” because it never existed in the first place.  The actual $1 billion in bond revenues was fully accounted for and spent on projects.

Hopefully this helps put this misunderstanding to rest once and for all.